ATMs, The ultimate Self-service Channel – A Macro View

The first ATM in India was installed at Andheri East in Mumbai in 1987. It was installed by HSBC bank for its Sahar Road Branch and since then, Indian ATM industry has come a long way, to be the ultimate self service channel.

From the core functionality of cash withdrawal and balance inquiry offered in those days, ATM use cases have now come of age. Today a modern full fledged ATM center offers lot many uses for the user apart from the core functionality of deposit withdrawal and inquiry. A few innovative uses being cardless cash, bill payment, dynamic currency conversion, domestic remittance, service requests, standing instructions even ability to accommodate physically/visually challenged customers.

As of June 2012, there were 99,218 ATMs in operations as per Reserve Bank of India website figures. The estimated growth rate for ATMs is around 23-25% per annum and it’s expected that in next 3 years around 100,000 ATMs will come from private and public sector banks and Independent ATM Deployers (white label ATMs) will bring another 60080,000 ATMs by end of 2013.

If one looks at the split of ATMs for public sector and private sector banks including foreign banks, there is approximate 65:35 ratio with the higher part being contributed by public sector banks. In future, though, with advent of IADs, the ratio may get skewed towards IADs, Public Sector Banks and private sector banks could be last.

Shared Services Infrastructure set ups like NFS, Cashnet, Cashtree have ensured that today bank customers can access the entire ATM base without having to worry about interconnectivity. Technological advances, specifically Wireless technologies, biometrics and smart ATMs are allowing ATMs to be deployed anywhere, to be used by anyone and for almost everything (integrating QR codes to disseminate info or enable a cardless transaction e.g.).

With NFS coming and launch of Rupay card has ensured that the foreign switchers have fewer roles to play in domestic ATM acquiring market, though, on the international front, they continue to hold sway. The interchange market has also become mature with interchange and switching rates coming down due to NFS paying a big role in it. The RBI decision to not allow IADs to charge customers directly has also ensured that interchange rates may have peaked and going ahead, depending on efficiency gained through shared services network, economies of scale, technological advances bringing down cost of ATMs and peripherals, the interchange rates may head south only.

The banks primarily looked at ATMs earlier from a customer service perspective but later added aspects of channel migration, customer acquisition, higher brand recall, differentiation strategy and now even adding revenue perspective to it with addition of value added services like prepaid mobile top up.

Today new business models and use of ATMs are emerging apart what is mentioned earlier, like earning revenue from interchange, forex conversion (Dynamic Currency Conversion), merging m-banking with ATM banking to bring m-commerce capabilities to ATMs, 3^rd party Advertising as per guidelines and of course, cashless ATMs to follow to drive sales volumes at retailers without having to incur card usage charges (for merchants).

The increasing base of Prepaid Cards, m-wallets and initiatives like Aadhar card, to facilitate direct money transfer to cards and permitting withdrawal through ATMs, is going to drive the transaction growth apart from RBI and Government’s initiatives to extend basic banking service to a much larger population.

The managed services space is also seeing great growth with TCBIL overtaking Prizm in a short span and more players like Wincor AGS combine, Euronet and even OEMs managing to stay on the growth path.

The major market drivers for ATMs continue to be customer service, channel migration drive from banks to shift customer transactions from branches to ATMs, use of ATM channel as part of differentiation and acquisition strategy, growth of shared service infrastructure, low ATM density (As of June 2012, the entire country of India had about 99,000 plus ATMs to serve an enormous population. This averages out to a ratio of 1 ATM per 13,333 citizens. By contrast, the U.S. has about 400,000 ATMs, or 1 ATM for every 779 citizens — more than 17 times higher than India's ratio), advent of open loop prepaid cards and m-wallets with biometric expected to play in major role in improving penetration, acceptance and usage of ATMs in rural areas.

Multi currency ATMs, Cash recycling ATMs at retail stores/chains, Cashless ATMs, Bunch note acceptors and coupon dispensers are expected to find more acceptance and will help in growth of ATM market overall. If cheque truncation solution at ATMs deliver to the promise they hold with help from technology vendors and regulator, that could be another key driver to aid growth of self service industry.

In terms of key challenges for the ATMs, the set up and management cost, real estate prices, more use cases for ATMs, possible threat from mobile money & cash-out facility at PoS outlets and shift towards e-payment channels obviating need for cash withdrawal to some extent, will be the ones to overcome apart from finding a viable business model for ATM expansion in tier -3-to tier 6 cities and rural areas.

To conclude, there is huge potential for growth of ATM market, more specifically self service terminals, in India and the tailwinds are strong enough to take the ship to the edge of the world, if there is any.

Note – The views expressed are author’s personal views and for any feedback, he can be contacted at rajnishkhare@gmail.com